"It was with the deepest regret that the Executive found the duty of employing the war power in defense of the government forced upon him. He could but perform this duty, or surrender the existence of the government. No compromise by public servants could in this case be a cure; not that compromises are not often proper, but that no popular government can long survive a marked precedent that those who carry an election can only save the government from immediate destruction by giving up the main point upon which the people gave the election. The people themselves, and not their servants, can safely reverse their own deliberate decisions.
"As a private citizen, the Executive could not have consented that those institutions should perish; much less could he, in betrayal of so vast and so sacred a trust as these free people have confided to him. He felt that he had no moral right to shrink, or even to count the chances of his own life, in what might follow. In full view of his great responsibility, he has, so far, done what he has deemed his duty. You will now, according to your own judgment, perform yours. He sincerely hopes that your views and your action may so accord with him as to assure all faithful citizens who have been disturbed in their rights of a certain and speedy restoration of them, under the constitution and the laws.
"And having thus chosen our course, without guile and with pure purpose, let us renew our trust in God, and go forward without fear and with manly hearts."
Secretary Chase also submitted to Congress, on the first day of the session, a clear statement of the financial condition of the United States. He estimated the sum needed for the fiscal year ending June 30, 1862, at $318,519,581. He recommended a large increase of duties on imports, especially upon such articles as were then free from duty; also a direct tax of $20,000,000, to be apportioned among the states according to population; also a tax on distilled spirits, ale, beer, tobacco, bank notes, and other articles of domestic production. He also suggested the property of those engaged in insurrection or in giving aid and comfort to insurgents should be made to contribute to the expenditures made necessary by their criminal misconduct. As the receipts from taxation would still be inadequate to meet the expenses of the war, he discussed the best mode and form of borrowing money, including bonds running for a long period with a fixed rate of interest, and treasury notes bearing interest, payable on demand.
Kansas having recently been admitted into the Union, twenty-three states were represented in the Senate by forty-six Senators. Eleven states being in open war against the United States, twenty-one of their Senators withdrew, but Andrew Johnson, of Tennessee, remained in the Senate, making the total of Senators forty-seven. Some of these Senators were new in congressional life, and some had been transferred from the House of Representatives. This transfer of a Member, though eagerly sought, is not for a time agreeable. However conspicuous the Member may have been in the House, he must take his place in the Senate at the bottom of the ladder, and, according to Senatorial usage, must be reasonably modest in expressing his opinions. The withdrawal of so many Senators in 1861, however, gave the new Members better positions than usual. I was assigned to the committee on finance and on naval affairs.
At that time the committee on finance had charge of all bills appropriating money for the support of the government, all tax or revenue bills, all loan and coinage bills, and, generally, all bills relating to the treasury department, and to the finances of the government. It was soon manifest that, in view of the war, and the enormous sums required to conduct it, the task of the committee would be a Herculean one, and that the labor required would fall chiefly on Mr. Fessenden, the chairman of the committee, and, I may with due modesty add, myself. My former position in the House of Representatives, as chairman of the committee of ways and means, and my personal association with Secretary Chase, with whom I was intimate, led to my taking an active part in financial legislation, which was considered my specialty. Congress, in substantial conformity with the recommendations of Secretary Chase, passed the act to authorize a loan which was approved July 17, 1861, providing for the issue of $250,000,000 of bonds running twenty years, bearing not exceeding seven per cent. interest, or treasury notes for not less than fifty dollars each, bearing interest at not less than seven and three-tenths per cent. annually, and payable in three years, and treasury notes of less denomination than fifty dollars, not bearing interest and not exceeding $50,000,000, payable on demand, and commonly known as demand notes. We knew that this act was entirely inadequate for the great struggle before us. The problem was not whether we could muster men, but whether we could raise money. We had to create a system of finance that would secure an enlarged revenue, unquestioned credit, absolute certainty of payment of interest in coin, a national currency, and such economy as is possible during war.
The first feeble attempt to create a national currency was the issue of demand notes under the act of July 17, 1861, described as follows:
"And the Secretary of the Treasury may also issue, in exchange for coin, and as part of the above loan, or may pay for salaries or other dues from the United States, treasury notes of a less denomination then fifty dollars, not bearing interest, but payable on demand by the assistant treasurer of the United States, at Philadelphia, New York or Boston."
The fatal defect of these notes was the promise to pay on demand. How could they be paid? In what kind of money? They could not be paid out of the current revenue, for that was insufficient to meet current expenses. No reserve was provided for their payment, and, when paid, there was no authority for their re-issue. All other forms of securities bore interest, and these notes, not bearing interest, were convertible into bonds and that was the end of them. If that was the process why issue them at all? They did not prevent, but rather expedited, the disappearance of gold. Of American silver dollars there were none. Even the new fractional silver coins rose to a premium, and were hoarded or exported. Still, the necessity existed for some form of paper money that would be available for circulation. The solution of this problem was properly left to the next regular session of Congress.
Congress did not act upon the recommendations for internal taxes, but this subject was also left over until the next session. It did provide, however, for a large increase of revenue from imports, mainly upon articles that were then free from taxation and upon articles regarded as luxuries; also for a direct tax on the states of $20,000,000, and for a graded tax, from and after the first day of January, 1862, upon the annual income of every person residing in the United States, from whatever source the income should be derived; if such annual income should exceed the sum of $800 a tax of three per cent. on the excess above that limit. A provision was made reducing the tax on incomes from treasury notes and other securities of the United States one-half. The tax on incomes of citizens of the United States residing abroad was placed at five per cent., except on that portion derived from interest on treasury notes and other securities of the United States, which was taxed one and one-half per cent.